Define the following terms as used in agricultural economics. (1 Mark) (i) Marginal Utility. (1 Mark) (ii) Opportunity cost. (1 Mark) (iii) Price elasticity of demand. (1 Mark) (iv) Market equilibrium. (1 Mark) (v) Indifference curve. QUESTION 2 a) Explain the difference between a movement along the demand curve and a shift in the demand curve. (4 Marks) b) Using diagrams,illustrate the effects of an increase in the price of a substitute good on the demand for another good. (6 Marks)

Question

Define the following terms as used in agricultural economics. (1 Mark) (i) Marginal Utility. (1 Mark) (ii) Opportunity cost. (1 Mark) (iii) Price elasticity of demand. (1 Mark) (iv) Market equilibrium. (1 Mark) (v) Indifference curve. QUESTION 2 a) Explain the difference between a movement along the demand curve and a shift in the demand curve. (4 Marks) b) Using diagrams,illustrate the effects of an increase in the price of a substitute good on the demand for another good. (6 Marks)

Answer 1

QUESTION 1(i) Marginal Utility: In agricultural economics, marginal utility refers to the additional satisfaction or benefit derived from consuming an additional unit of a good or service. It represents the change in total utility resulting from the consumption of one more unit of a good.(ii) Opportunity Cost: Opportunity cost in agricultural economics refers to the value of the next best alternative that is forgone when making a decision. It represents the cost of choosing one option over another and is an important concept in resource allocation and decision-making.(iii) Price Elasticity of Demand: Price elasticity of demand in agricultural economics measures the responsiveness of the quantity demanded of a good to a change in its price. It indicates how much the quantity demanded will change in response to a change in price.(iv) Market Equilibrium: Market equilibrium in agricultural economics occurs when the quantity demanded of a good equals the quantity supplied at a particular price level. At this point, there is no excess supply or demand, and the market clears.(v) Indifference Curve: An indifference curve in agricultural economics represents a set of combinations of two goods that provide the same level of satisfaction or utility to a consumer. It shows the consumer's preferences and the trade-off between the two goods.QUESTION 2a) The difference between a movement along the demand curve and a shift in the demand curve lies in the direction of the change in quantity demanded.- A movement along the demand curve occurs when there is a change in the quantity demanded due to a change in the price of the good itself. This movement is parallel to the demand curve and represents a change in quantity demanded at different price levels.- A shift in the demand curve, on the other hand, occurs when there is a change in the quantity demanded due to factors other than the price of the good. This shift is perpendicular to the demand curve and represents a change in the entire demand curve at a given price level.b) The effects of an increase in the price of a substitute good on the demand for another good can be illustrated using diagrams.- Diagram 1: In this diagram, the demand curve for Good A is shown. An increase in the price of a substitute good (Good B) will cause a shift in the demand curve for Good A. The demand curve for Good A will shift to the left, indicating a decrease in demand for Good A.- Diagram 2: In this diagram, the demand curve for Good A is shown. An increase in the price of a substitute good (Good B) will cause a shift in the demand curve for Good A. The demand curve for Good A will shift to the right, indicating an increase in demand for Good A.In both diagrams, the shift in the demand curve represents the change in demand for Good A due to the increase in the price of the substitute good (Good B).

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